The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has provided a US$50mn credit line to the Brazilian bank, Banco ABN Amro Real.
The credit line will support two forms of sustainability-targeted, long-term on-lending at the bank: financing to firms for specific environment-related projects; and general purpose loans to family-owned, middle-market companies that improve their corporate governance standards. In both types of on-lending, Banco Real will use IFC’s Sustainability Framework to help make credit decisions for transactions funded by the credit line.
Jyrki Koskelo, director of IFC’s Global Financial Markets department, notes: “This transaction represents a first-time use of IFC’s Sustainability Framework by an emerging market financial institution. We are extremely pleased that a bank such as Banco Real, already a market leader in Brazil in sustainability-related business practices, has chosen to further refine its policies in this regard by using the Sustainability Framework in its lending activities.”
Banco Real, established in 1917, is the fifth largest private bank in Brazil, with US$19.2bn-equivalent in total assets as of December 2003. The bank operates through a network of about 1,140 branches. The bank is one of ABN’s three “home markets ‘, together with the Netherlands and the midwest of the US.
In 2001, senior management at Banco Real began formally incorporating assessment of social and environmental aspects of transactions into the overall approval process for the bank’s everyday business activities.
Subsequently, in July 2002, a social and environmental financing policy was formally implemented at all organisational levels of the bank. This policy defines methodologies and eligibility criteria for deeming any project Banco Real undertakes – either on its own or with a client – as “environmentally sound and sustainable ‘, and has subsequently become a formal part of the credit approval as well as risk management processes for all of the bank’s business activities.
Fabio Barbosa, president of Banco Real, says: “This transaction with IFC will play an important role in accommodating demand for funding from Brazilian sponsors of environment-related projects, which are expected to increase considerably as environment-targeted expenditures by companies continue to be characterised by dynamic growth. Furthermore, we are pleased to start playing a substantive role in encouraging additional corporate governance reform at family-owned, middle market companies – by providing firms that undertake such initiatives with access to relatively scarce, medium- to long-term funding.”
IFC is a leader in sustainability, and for years has applied a set of required environmental and social compliance standards to its investments. In early 2001, IFC also began to explore ways to help clients identify opportunities to enhance their environmental, social, and corporate governance performance, while also improving their bottom line results.
One consequence of this effort was the development of IFC’s Sustainability Framework, an analytical methodology for evaluating the expected environmental, social, and corporate governance impact of IFC projects.
Atul Mehta, IFC’s director for Latin America and the Caribbean, says: “Banco Real’s emphasis on financing sustainable businesses and projects highlights the bank’s position as a vanguard institution. Therefore, IFC expects that this credit line may also have a demonstration effect that could lead to greater provision of similar sustainability-targeted credit products in Brazil’s financial sector, thus encouraging further environmental and corporate governance-related improvements at Brazilian companies.”
Alongside the above-mentioned credit line, IFC will also provide Banco Real an additional US$1mn in loan financing and technical assistance for an on-lending programme that will benefit small and medium enterprises with investment projects that target climate change, loss of biodiversity, land degradation, and persistent organic pollution. This additional loan will be managed by the Environmental Business Finance Program – an IFC programme funded by the Global Environment Facility.